Fannie Mae sent a note to lenders and underwriters who use their “Desktop Underwriter” program letting them know that the policy of requiring 25% equity in a primary residence before converting it to a rental and buying a second residence no longer apply.
A headline like this could have appeared in 2004. Are we on the same track? If we are you can look forward to a Flat stock market for the next 18-24 months. This is being aggravated by the problems in Greece and Spain. Even if there are stop gap loans approved, Greece and Spain won’t suddenly be “debt free”. The way the debt is being paid for just changed. That is like moving your credit cards from Bank of America to Local Credit Union so that you can save 3% on the interest even though you still can’t make the interest payments.
In California, Real Estate Values nearly doubled from early 2004 through the peak in late 2006. Currently we are seeing the same trend with large building tracts popping up where there is no water or infrastructure and cities granting the permits hoping for more Tax money later. Bad business, bad government finance. Additionally we are seeing home prices approaching double digit growth again like we did in 2003 and 2004.
Ironically even as the requirement to have equity is reduced home ownership is on the decline and the rental market is surging. It makes sense that Fannie Mae wants to get loans that make money, so lending to those who have a house to buy another as rentals are increasing makes sense right?
Home ownership peaked with nearly 70% of the homes sold in 2005 resulting in a “net new household”. The truth is many couldn’t afford those homes at the inflated prices and the crash followed. So where are we headed now?